States won’t be allowed to tax income, Abbott says

Prime Minister
Tony Abbott
has thrown his support behind giving the states greater autonomy but stopped short of advocating they be able to set their own income tax rates, as recommended by the Commission of Audit.

At Friday’s Council of Australian Governments meeting, Mr Abbott and the state and territory leaders agreed to start drafting the terms of reference for a white paper into reforming the ­federation.

Queensland Premier
Campbell Newman
was the most enthusiastic supporter of the commission’s recommendation that the states take full control of health and education in return for receiving a quarantined percentage of income tax revenue as well as being able to individually vary the percentage they receive

Mr Abbott suggested he would consider hypothecating a proportion of income tax towards the states in return for them taking control of essential services but not give them any control over the tax rate. “In principle, I would like to see each level of government more sovereign it its own sphere," he said

“I don’t think anyone wants to see double taxation."

In a bid to end “mindboggling" waste and duplication, the audit commission recommended state and federal governments should each be “sovereign in their own sphere".

If education, health and natural disaster relief were to be completely devolved to the states, there must also be an overhaul of tax and funding arrangements.

The commission recommends that the Commonwealth, for example, drop the 32.5 per cent income tax rate, which applies to incomes from $37,000 to $80,000, by 10 percentage points. It would then levy a 10 per cent state surcharge, the proceeds of which would be quarantined and given to the states to spend as they wish. It further recommends they can each vary the level of the surcharge, something which would lead to differential tax rates across the country.

He said the states could then “sink or swim" on their per­formance and voters would not longer have to put of with different levels of government blaming each other.

Victorian Premier
Denis ­Napthine
and Western Australia’s
Colin Barnett
said their bigger priority was another audit recommendation to distribute GST to the states based on their population. This would cost revenue to the smaller states like South Australia and Tasmania but the commission recommended they be topped up by the Commonwealth so they do not go backwards. These top-up payments would cost $5 billion a year on current figures.

South Australia Premier
Jay Weatherill
opposed the GST redistribution and he was the most ­cautious about the devolution of powers and change in income tax arrangements.

He said federation was about the states becoming “one nation, not a series of competing units". The unity had given strength. “It’s important to not to unravel that in our quest for reforms," he said.